An Overview of the Lumber Industry in Canada, 2004 to 2010

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1 Catalogue no M, no. 89 ISSN ISBN Analytical Paper... Analysis in Brief An Overview of the Lumber Industry in Canada, 2004 to 2010 by Benoit Germain Manufacturing and Energy Division 11th Floor, Jean Talon Building, 170 Tunney s Pasture Driveway, Ottawa, On K1A 0T6 Telephone:

2 How to obtain more information For information about this product or the wide range of services and data available from Statistics Canada, visit our website at or telephone us, Monday to Friday from 8:30 a.m. to 4:30 p.m., at the following numbers: Statistics Canada s National Contact Centre Toll-free telephone (Canada and the United States): Inquiries line National telecommunications device for the hearing impaired Fax line Local or international calls: Inquiries line Fax line Depository Services Program Inquiries line Fax line To access this product This product, Catalogue no M, is available free in electronic format. To obtain a single issue, visit our website at and browse by Key resource > Publications. Standards of service to the public Statistics Canada is committed to serving its clients in a prompt, reliable and courteous manner. To this end, Statistics Canada has developed standards of service that its employees observe. To obtain a copy of these service standards, please contact Statistics Canada toll-free at The service standards are also published on under About us > The agency > Providing services to Canadians.

3 Statistics Canada Manufacturing and Energy Division An Overview of the Lumber Industry in Canada, 2004 to 2010 Published by authority of the Minister responsible for Statistics Canada Minister of Industry, 2012 All rights reserved. The content of this electronic publication may be reproduced, in whole or in part, and by any means, without further permission from Statistics Canada, subject to the following conditions: that it be done solely for the purposes of private study, research, criticism, review or newspaper summary, and/or for non-commercial purposes; and that Statistics Canada be fully acknowledged as follows: Source (or Adapted from, if appropriate): Statistics Canada, year of publication, name of product, catalogue number, volume and issue numbers, reference period and page(s). Otherwise, no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form, by any means electronic, mechanical or photocopy or for any purposes without prior written permission of Licensing Services, Information Management Division, Statistics Canada, Ottawa, Ontario, Canada K1A 0T6. January 2012 Catalogue no M, no. 89 ISSN ISBN Frequency: Occasional Ottawa Cette publication est également disponible en français. Note of appreciation Canada owes the success of its statistical system to a long-standing partnership between Statistics Canada, the citizens of Canada, its businesses, governments and other institutions. Accurate and timely statistical information could not be produced without their continued cooperation and goodwill.

4 User information Symbols The following standard symbols are used in Statistics Canada publications:. not available for any reference period.. not available for a specific reference period... not applicable 0 truezerooravalueroundedtozero 0s p r x E F value rounded to 0 (zero) where there is a meaningful distinction between true zero and the value that was rounded preliminary revised suppressed to meet the confidentiality requirements of the Statistics Act usewithcaution too unreliable to be published * significantly different from reference category (p < 0.05) 2 Statistics Canada Catalogue no M, no. 89

5 Table of contents An Overview of the Lumber Industry in Canada, 2004 to Introduction 4 2 Economic issues 4 3 The lumber industry: Recent trends, Signs of recovery in Conclusion 10 Appendix I References 11 II Note to Readers 12 III Data Sources 13 Statistics Canada Catalogue no M, no. 89 3

6 An Overview of the Lumber Industry in Canada, 2004 to 2010 by Benoit Germain 1 Introduction Forests cover approximately 397 million hectares of Canada s territory. This is more than twice the area of the province of Quebec and about 10% of the world s forest cover. 1 The potential for logging and associated products is huge. Indeed, Canada is one of the world s leading lumber producers. In recent years, the Canadian lumber industry has experienced various pressures, such as declining demand in the United States and the softwood lumber dispute between Canada and the United States. This study examines the relationship between the issues affecting the lumber industry and the fluctuation of a number of economic variables, including sales, production volume, employment, the number of operating sawmills, and exports. We will try to answer the following questions: How is the lumber industry faring on these issues? What has changed? What has not changed? For consistency in the data, we will not consider the period prior to Between 2003 and 2004, there was a major change in the methodology of the Annual Survey of Manufactures and Logging (ASML). We believe that this created a break in the trends in the associated variables. In addition, data from this survey at the time of writing were available only up to Section 2 outlines the main economic issues affecting the lumber industry; Section 3 presents an analysis of the changes in selected economic variables between 2004 and 2009; the final section focuses on 2010, which saw a resurgence of economic activity in the industry. Note that in this study, the lumber industry is generally taken to be the sawmill industry (except single and shake mills), unless otherwise indicated. See the note to readers for more information. 2 Economic issues 2.1 Lower demand in the United States The United States is Canada s largest trading partner. A decline in U.S. demand generally affects Canadian exporting industries. One way of measuring U.S. demand for Canadian softwood lumber is to look at the number of housing units started in the United States. Between 2004 and 2010, the number of private housing starts dropped from about 2.0 million to slightly less than 587,000, a decline of about 70%. 1. Natural Resources Canada, The State of Canada s Forests, Statistics Canada Catalogue no M, no. 89

7 Analysis in Brief Chart 1 New privately owned housing units started in the United States, from 2004 to 2010 millions Source(s): U.S Census Bureau, Manufacturing, Mining, and Construction Statistics. In 2009, the number of private housing starts was just 554,000 units, its lowest level in 50 years. Although a slight increase in 2005 is observed, this downward trend indicates that demand for Canadian lumber decreased substantially between 2004 and Lumber dispute between the United States and Canada In 2001, the U.S. Department of Commerce ruled that the stumpage fees the Canadian government was charging Canadian logging companies were too low. The United States subsequently imposed countervailing duties on Canadian exports. In 2006, the two countries signed a new Softwood Lumber Agreement. Essentially, the agreement provided for the withdrawal of the export duties and the reimbursement of most of the duties collected from Canadian forestry companies since In this context, we see greater diversification of the export markets for Canadian lumber. The proportion of exports to the U.S. market decreased considerably between 2004 and In 2004, 81.1% of all exports were destined for the U.S. market; by 2010, the proportion was 58.7%. However, there were other factors at play also, as we will see later. 3 The lumber industry: Recent trends, In the context of the two issues mentioned above, the lumber industry s contribution to the Canadian economy has decreased steadily in recent years. In 2004, the industry s sales accounted for 2.9% of total manufacturing sales; by 2009, the proportion was about 1.2%. Even though its contribution may seem small, the industry is vital to some 200 rural communities, making up more than half their economies. 2 Forest products play a key role in the development of the more remote parts of Canada, including Aboriginal communities. 2. Natural Resources Canada, The State of Canada s Forests, Statistics Canada Catalogue no M, no. 89 5

8 Analysis in Brief 3.1 Sales and production volume Between 2004 and 2009, the value of sales fell from $16.9 billion to $5.9 billion (-65.1%). Lumber production also declined during the same period, declining from 84.6 million cubic metres to 45.2 million cubic metres (-46.5%). Chart 2 Sales and production volume were declining between 2004 and 2009 billions of dollars millions of m Value of sales Production volume Source(s): Statistics Canada (Monthly Survey of Manufacturing ; sawn lumber production and shipments), CANSIM tables and This decline in sales and production volume coincided with a decline in U.S. demand for lumber. As mentioned previously, the number of new privately owned housing units started was also decreasing during that period, except in 2005 (see Chart 1). Between 2004 and 2006, the decline in sales can also be attributed to falling prices; production volume remained relatively stable, declining only 4.4% while prices dropped by 14.2%. 6 Statistics Canada Catalogue no M, no. 89

9 Analysis in Brief Chart 3 Prices decline Industrial Product Price Index - sawmills and wood preservation, 2002 = Source(s): Statistics Canada (Industrial Product Price Index), CANSIM table Employment and the number of operating sawmills The declines in sales and production volume are also reflected in the decreasing number of jobs in the lumber industry. While there are lumber industry jobs across Canada, they are most heavily concentrated in four provinces: British Columbia (40.8%), Quebec (29.5%), Alberta (10.1%) and Ontario (8.6%). 3 Between 2004 and 2009, the number of direct and indirect jobs 4 across Canada dropped from 50,176 to 26,369 (-47.4%). In absolute terms, British Columbia was hardest hit, losing 9,494 direct and indirect jobs. Quebec and Ontario also suffered significant losses, as employment shrank by 6,795 (-46.6%) and 3,393 (-60.0%) respectively during the same period. In Alberta, the number of direct and indirect jobs declined somewhat less than the other three provinces, decreasing 1,124 (-29.7%) jobs between 2004 and 2009 (see table 1). This widespread decline in employment was primarily due to the closure of many sawmills across Canada; the number of operating establishments decreased from 1,920 to 1,538 (-19.9%) between 2004 and According to data from the 2009 Annual Survey of Manufactures. 4. Direct jobs are held by workers who are directly involved in the production of forest products, while indirect jobs are created by the activity in the forestry industry but are not in the industry itself (e.g., transportation of goods to other markets, purchase of intermediate products, capital investment). Source: Natural Resources Canada. Statistics Canada Catalogue no M, no. 89 7

10 Analysis in Brief Table 1 Employment declined between 2004 and 2009 Years Total British- Columbia Quebec Ontario Alberta number ,176 20,240 14,574 5,652 3, ,856 19,380 14,263 5,873 3, ,880 19,065 12,709 5,635 3, ,869 16,532 10,692 3,925 3, ,108 13,461 9,018 3,030 3, ,369 10,746 7,779 2,259 2,662 Of course, the lumber industry was not alone in suffering substantial employment losses in that period. Between 2004 and 2009, the manufacturing sector lost 357,000 jobs (-19.6%). 3.3 Exports Between 2004 and 2009, the total value of exports of softwood lumber dropped from $11.9 billion to $4.2 billion (-64.8%). Over the same period, exports to the U.S. market fell from $9.6 billion to $2.6 billion (-72.7%), mirroring the slowdown in the American housing market. Table 2 Significant decrease in exports between 2004 and 2009 Years Total United Sates Japan Western Europe Others millions of dollars ,891 9,647 1, ,798 8,947 1, ,564 7,644 1, ,735 5, ,647 3, ,183 2, The proportion of exports shipped to the United States has also decreased in recent years; 63.1% of lumber exports went to the U.S. market in 2009, compared with more than 80.0% in As a result, the proportion of exports to countries other than the United States, Japan and Western Europe grew substantially, from just 3.7% in 2004 to 15.4% in China is among the countries consuming increasing volumes of Canadian lumber. In 2009, the value of exports to China was over $338 million, more than half of total exports to countries other than the United States, Japan and Western Europe. We have created an index representing the variation in exports relative to 2004 in Chart 4. This demonstrates how the structure of export destinations has changed over time. 8 Statistics Canada Catalogue no M, no. 89

11 Analysis in Brief Chart 4 Exports of Canadian softwood lumber since 2004 Lumber Exports Index, 2004 = United States Japan Western Europe Other Source(s): Statistics Canada (International Trade Division), special query via Industry Canada. In 2009, the value of exports to other countries was nearly 1.5 times higher than in 2004, at about $643 million. Conversely, the value of exports to the United States was just 27.3% of what it was in 2004, a decline of more than $7.0 billion. 4 Signs of recovery in 2010 Despite the decreases between 2004 and 2009, the Canadian lumber industry showed signs of resurgence in Between 2009 and 2010, sales rose from $5.9 billion to $7.4 billion (+25.9%), while production volume grew at a slightly slower rate, rising from 45.2 million cubic metres to 53.3 million cubic metres (+17.8%). These were the first gains since Table 3 Upturn in sales and production volume in 2010 Years Sales Production millions of dollars millions of cubic meters , , , , , , , Employment of the industry 5 increased from 34,364 to 34,532 (+0.5%) in This increase in employment, though not entirely concentrated in the lumber industry, is certainly a positive sign for forestry workers. Lumber exports were also up in 2010, rising to $5.3 billion, 27.0% more than in We are referring here to industry Sawmills and wood preservation. See note annexed for more details. Statistics Canada Catalogue no M, no. 89 9

12 Analysis in Brief Nevertheless, the proportion of lumber exports going to the U.S. market decreased to just 58.7% in In contrast, Canadian lumber exports to China have increased continuously, from less than 1.0% in 2004 to 13.2% in In 2010, the value of exports to China was almost equal to the value of exports to Japan. Moreover, some Canadian sawmills have started up again due to an increase of demand in Asia. 6 5 Conclusion The lumber industry experienced some major changes between 2004 and A number of economic indicators were falling until 2009 and then turned upward in Sales, production volume, employment and exports all declined appreciably, in part because of shrinking demand for wood products in the United States. In 2010, however, the trend reversed itself, and the indicators moved higher. In addition, the proportion of exports going to the U.S. market declined until countries, especially China, have increased substantially since However, exports to other That change in the structure of lumber exports is due to a number of factors, including lower demand in the United States. This appears to be supported by the number of new privately owned housing units started between 2004 and It is also interesting to note that the fall in demand started well before the 2008 crisis. 6. Natural Resources Canada, The State of Canada s Forests, 2011, p Statistics Canada Catalogue no M, no. 89

13 Appendix I References Dufour, Daniel, The Lumber Industry: Crucial Contributor to Canada s Prosperity, Analysis in Brief, No 31F0027MIE in catalogue, December Dufour, Daniel, The Canadian Lumber Industry: Recent Trends, Analysis in Brief, No MIE in catalogue, June 24, Industry Canada, Trade Data Online, Trade by Product, page consulted on May 30, Natural Resources Canada, The State of Canada s Forests, 2011 Annual Report, publications?id=32684, page consulted on May 25, Simard, Gilles, The Logging Industry: Supplying Sawmills and Pulp and Paper Plants, Manufacturing, Construction and Energy Division, No 25F0002MIE in catalogue, December U.S Census Bureau, Manufacturing, Mining, and Construction Statistics, newresconstindex.htm, page consulted on May 31, Statistics Canada Catalogue no M, no

14 Appendix II Note to Readers Note to readers The wood industry consists of three groups of establishments: those engaged in sawing logs into lumber and similar products or in preserving those products; those which make products that improve the natural characteristics of wood by manufacturing veneers, plywood, reconstituted wood panel products and engineered wood assemblies; and those which make a diverse range of wood products, such as millwork. In this article, the lumber industry consists of sawmills, except shingle and shake mills (NAICS ). This Canadian industry comprises establishments primarily engaged in manufacturing boards, dimension lumber, timber, poles and ties, and siding, from logs and bolts. The term lumber includes all first-stage wood products sawn from logs by sawmills. The lumber is then transformed into second-stage wood products such as doors and windows. Most lumber is produced from coniferous trees such as spruce, pine, fir and cedar, which make up the bulk of Canadian forests. 12 Statistics Canada Catalogue no M, no. 89

15 Appendix III Data Sources Data sources Most of the data used in this article are from the CANSIM database. The data on employment and the number of operating sawmills between 2004 and 2009 are from the Annual Survey of Manufactures and Logging (ASML). The survey covers all establishments primarily engaged in manufacturing and logging activities, as well as the sales offices and warehouses which support those establishments (table ). The Survey of Employment, Payrolls and Hours (SEPH) provided the 2010 employment data, which apply to the sawmills and wood preservation industry (NAICS 3211). Since 2009 is the most recent year for which ASML data are available, we believe that the change in employment in the sawmills and wood preservation industry provides a good indication of the change in employment in the lumber industry. The survey s (SEPH) target population is composed of all employers in Canada, except those primarily involved in agriculture, fishing and trapping, private household services, religious organizations and military personnel of defence services. Its samples are drawn from the Business Register and from a list of all businesses registered in the Canada Revenue Agency s Business Number program with one or more active payroll deduction accounts. The SEPH is a census with a cross-sectional design. No sampling is done, as data are collected for all units of the target population (table ). Sales are from the Monthly Survey of Manufacturing (MSM). The target population consists of incorporated and unincorporated establishments primarily engaged in manufacturing. The MSM is a sample survey with a cross-sectional design. Statistics Canada s Business Register has provided the sampling frame for the MSM since 1999 (table ). Data on production volumes are from the monthly survey of sawn lumber production and shipments. The survey measures the volumes of lumber produced and shipped by Canadian manufacturers. It is a sample survey with a cross-sectional design. The sample consists of 275 of the largest sawmills in Canada, excluding Newfoundland and Prince Edward Island (table ). The data on prices refer to the sawmills and wood preservation industry (NAICS 3211) and are taken from the Industrial Product Prices Index (IPPI). For the purposes of this article, we assume that lumber industry prices follow much the same trend as prices in the sawmills and wood preservation industry (table ). The data on exports are from International Trade Division, but they were extracted by a special query submitted through Industry Canada s website. Data on the number of new privately owned housing units started in the United States are from the U.S. Census Bureau and they can be found under this link: Statistics Canada Catalogue no M, no

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